This Second-Hand Smoke is Bad!

Last week, I learned that General Motors is in heap big trouble. According to the Wall Street Journal, its debt rating has been reduced to "junk" status. (Via Mover Mike)

Standard & Poor's on Thursday cut its rating on General Motors's almost $300 billion in debt to noninvestment-grade, or "junk," status and issued a negative outlook. GM's stock dropped more than 4% on the news.

The automaker has been laying the blame on the rapidly-escalating costs of insuring over 1.1 million employees, retirees, and dependents.

Its health-care cash tab last year was $5.2 billion and is expected to grow to $5.6 billion in 2005. GM estimates its future health-care obligations at $77 billion and growing.

Lately, it seems that GM spends almost as much time tying its problems to rising health-care costs as it does to foreign competition, rising gas prices or changing consumer tastes.

While this is staggering, many disagree that this is the biggest problem at GM.

[M]any on Wall Street who closely cover the company ... argue that GM would still struggle for profitability even if its health-care costs were greatly reduced.

"It's a smokescreen," said Sean McAlinden, vice president for research and chief economist at the Center for Automotive Research in Ann Arbor. "A lot of what they say is right. That's what makes this a very good smokescreen. ... Health care is a huge problem, but it's not the one that is going to destroy GM."

The real problem, McAlinden said, is that General Motors is using what it calls the "health care cost crisis" to disguise the fact that GM management hasn't designed enough cars people are excited about.

What should you care? Today is the first I've heard of this, but apparently the idea has enough currency to cause one columnist, Thomas Bray of the Detroit News, to take the trouble to say that it's a bad idea: The poor financial health of the big three automakers might be used as an excuse for another attempt to socialize medicine!

An urban legend making the rounds is that American manufacturers can't compete because of high and rising health care costs. The Big Three automakers, for example, say their health care costs account for $1,276 of the price of a new car, rendering them helpless against imports from places where health care is paid by government.

The proposed solution: a national health care system of our own.

That may seem like a nonstarter now, but that picture might change dramatically under a President Hillary Clinton. And it would have wide support from certain sectors of American industry.

The Bray column does an okay job explaining why this is a bad idea, but the limited scope of his argument shows the importance of refamiliarizing ourselves with this issue, both in philosophic terms (Why is health care not a right?) and in economic terms (How would nationalization of this sector adversely affect our lives?). In addition to the last two articles I linked to here, I would recommend any of the "related articles" listed to the right on those links.

I recall the last time our health was put in danger by the prospect of socialized medicine and how quickly many people got up to speed on the issue. With physicians, especially, I think the educational efforts of ARI were especially important. Let's not asphyxiate on GM's "smokescreen."

-- CAV

Crossposted to The Egosphere

Updates

5-9-05: Crossposted.